Peter Barnes has a guest post on the Step It Up blog giving a good brief description of how a Sky Trust would work:
Carbon capping comes in three varieties: cap-and-trade, cap-and-auction, and cap-and-recycle.
In cap-and-trade, permits are given free to historic polluters. This is called ‘grandfathering.’ The more a company polluted in the past, the more permits it gets in the future — not just once, but year after year. As the descending cap raises the price of fossil fuels, everyone pays more, and the comÂpanies that get free permits keep this extra money.
In Europe, a carbon cap-and-trade program with grandfathered permits handÂed billions of Euros in windfall profits to a few large utilities. In the U.S., an MIT study estimates that grandfathering permits to American utilities would give them hundreds of billions of dollars in extra profits every year for several decades.
In cap-and-auction, permits are sold to polluters, not given away free. Permit revenue goes to the government rather than to private companies. What government does with the money is then up to public officials.
In cap-and-recycle, permits are also sold, not given away free. However, the revenue doesn’t go to the government — it goes to all of us, one person, one share. The model here is the Alaska Permanent Fund, which pays equal dividends to all Alaskans from state oil income. This kind of cap is sometimes called a sky trust.
The kind of cap you prefer depends on your starting assumption. If you assume the atmosphere belongs to whichever companies grab it first, then cap-and-trade makes sense. If you assume the atmosphere belongs to government, then cap-and-auction is your choice. If you assume the atmosphere is a gift to everyone, then cap-and-recycle follows.